4 High Earnings Yield Stocks To Strengthen Your Portfolio

If you are not sure about whether to invest your money in bonds or stocks, an important parameter that can show you the right direction is earnings yield. It is the inverse of the price-to-earnings (P/E) ratio. This ratio comes handy for pinpointing undervalued stocks. Also, this ratio is useful for comparing stocks with the market or fixed income securities.

Earnings yield can be computed as (annual earnings per share/market price) x 100. While comparing similar stocks, the one with high earnings yield should fetch higher returns.

This ratio is useful for comparing the performance of the market with the 10-year Treasury yield. When the yield of the market index exceeds the 10-year Treasury yield, stocks can be said to be undervalued in comparison to bonds. This means that investing in the stock market is a better option for a value investor.

However, while T-bills are free of risks, investing in stocks always carries some inherent risks. Hence, it will be prudent to add a risk premium to the Treasury yield while comparing with the earnings yield of a stock or the broader market.

The Winning Strategy

We have set Earnings Yield greater than 10% as our primary screening criterion but it alone cannot be used for picking stocks that have the potential to generate solid returns. So, we have added the following parameters to the screen:

Estimated EPS growth for the next 12 months greater than or equal to the S&P 500: This metric compares the 12-month forward EPS estimate with the 12-month actual EPS.

Average Daily Volume (20 Day) greater than or equal to 100,000: High trading volume implies that a stock has adequate liquidity.

Current Price greater than or equal to $5.

Buy-Rated Stocks: Stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) have been known to outperform peers in any type of market environment.

Here are four of the 44 stocks that made it through the screen:

Providence, RI-based Citizens Financial Group, Inc. (CFG - Free Report) is a retail bank holding company. It has a Zacks Rank #2 and an expected EPS growth rate of 15.5% for the next 3-5 years.

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.

Zacks Investment Research is one of the most highly regarded firms in the investment industry. The guiding principle behind our work is that there must be a good reason for brokerage firms to ...
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Zacks Investment Research is one of the most highly regarded firms in the investment industry. The guiding principle behind our work is that there must be a good reason for brokerage firms to spend billions of dollars a year on stock research. Obviously, these investment experts know something special that may be indicative of the future direction of stock prices. From day one, we were determined to unlock that secret knowledge and make it available to our clients to help them improve their investment results. In 1978 our founder, Len Zacks, made a breakthrough. Armed with his PhD in Mathematics from MIT, Len discovered that: Earnings estimate revisions are the most powerful force impacting stock prices From there he developed a quantitative model to harness the power of earnings estimate revisions - the direction, the degree of change, and surprises - along with other important variables to create the Zacks Rank. This unique and innovative rating system predicted the potential for future stock price increases. In fact, it proved itself as a system that clearly stated when to buy, sell, and hold stocks. And it was very unusual in that it provided an equal number of buys and sells. Unheard of in the days when all Wall Street could say was "Buy". Zacks Rank is completely mathematical. It's cold. It's objective. The Zacks Rank does not care what the hype on the street says. Or how many times the CEO appeared on TV. Or how this company could some day, maybe, if everything works perfectly, and the stars are aligned become the next Microsoft. The Zack Rank only cares about the math and whether the math predicts that the price will rise. Needless to say, leading firms in the investment industry wanted to use this rating tool as part of their decision making process. And Zacks Investment Research became one of Wall Street's most respected firms. Today, Wall Street continues to use Zacks research including the Zacks Rank and Zacks Equity Research, which combines the best of quantitative and qualitative analysis. This same professional strength research is now available to individual investors on our web site, Zacks.com, and through our other services. See the proven power of Zacks research for yourself free and get four free stock picks every day. Learn more now.